Mortgage Investors May Be Owed Three Times More in BofA Deal

July 21 (Bloomberg) -- Investors in Countrywide Financial
Corp. mortgage bonds may be owed three times or more of what
they’re being offered in an $8.5 billion settlement with Bank of
America Corp., a group of Federal Home Loan Banks said.

The home loan banks, which invested more than $8.8 billion
in the mortgage-backed securities, are trying to get access to
more information about the deal by joining the case and said a
reasonable settlement could range from $22 billion to $27.5
billion or more.

Expert reports used as legal support for the settlement
“raise more questions than they answer,” the home loan banks
said in a court filing today in New York State Supreme Court,
where a judge will consider approving the settlement later this
year.

Under the agreement, Bank of America will pay $8.5 billion
to resolve claims from investors in 530 residential mortgage
securitization trusts. Bank of America acquired Countrywide in
2008. The deal was reached with 22 institutional investors,
including BlackRock Inc., and the trustee for the securities,
and would apply to other investors in the trusts.

Countrywide Disclosures

The Federal Home Loan Banks of Boston, Chicago,
Indianapolis, Pittsburgh, San Francisco and Seattle are seeking
to intervene in the case and may oppose the settlement,
according to court papers. The companies are among the 12
government-chartered FHLBs, which collectively raise cash in the
bond market to lend to the banks and insurers that own them.
Several of the FHLBs have outstanding suits over disclosures
made by Countrywide that could continue under the terms of the
broader settlement.

The home loan banks criticized assumptions in an expert
report completed for Bank of New York Mellon Corp., the trustee
for the mortgage-bond trusts. The report’s estimate of a
reasonable settlement would rise to $22 billion to $27.5 billion
if it assumed that Bank of America would have to buy back all
loans in default and which breached representations and
warranties, instead of 40 percent, the home loan banks said in
their court filing.

“Modifying any of his other three assumptions would cause
that range to rise much more,” the banks said about the expert.

Due Diligence

Lawrence Grayson, a spokesman for Charlotte, North
Carolina-based Bank of America, said Bank of New York has
“outlined at length the extensive due diligence” it engaged in
before entering into the settlement, including the expert
reports.

“We look forward to the court determining on the merits
whether the trustee acted appropriately in entering into the
settlement,” Grayson said in an e-mailed statement. “We believe
that it did.”

Kevin Heine, a spokesman for Bank of New York, declined
comment.

The case is In the matter of Bank of New York Mellon,
651786/2011, New York state Supreme Court (Manhattan).